Oil prices rise on uncertainty after Chavez’s death

AFP and Reuters,
SINGAPORE and CARACAS

Thu, Mar 07, 2013 - Page 15

Oil prices climbed in Asian trade yesterday on uncertainty following the death of Venezuelan President Hugo Chavez, the leader of the major Latin American crude producer, analysts said.

New York’s main contract, light sweet crude for delivery next month, added US$0.26 to US$91.08 a barrel and Brent North Sea crude for delivery next month rose US$0.32 to US$111.93 in mid-afternoon trade.

“The impact of the news seems to be minimal at this point in time, but some speculation and risk has been priced into oil futures,” Ker Chung Yang, senior investment analyst at Phillip Futures in Singapore, told reporters.

“Chavez has been in this position for so long, so there is a risk embedded in the political transition that could result in a disruption of oil supply,” Yang added.

Jason Hughes, head of premium client management at IG Markets Singapore, said the full impact of the left-wing leader’s death has yet to be felt but traders are watching for signs of instability within OPEC member Venezuela.

“There is a potential for instability in the country,” Hughes told reporters.

Venezuela has the world’s largest proven oil reserves, according to OPEC.

The government says Venezuela produces 3 million barrels of oil per day, although OPEC says the figure is 2.3 million. Oil production accounts for 90 percent of the country’s hard-currency revenue.

Chavez, 58, lost his battle with cancer on Tuesday, plunging the nation into an uncertain future. The Venezuelan foreign minister has said an election will be held within 30 days and that Venezuelan Vice President Nicolas Maduro will take over as interim president from Chavez, who had been in power since 1998.

Venezuela’s oil industry was operating normally on Tuesday and no disruption was expected following the death of Chavez, state oil company PDVSA said, calling for calm in the OPEC nation.

State firm PDVSA said all its installations — including the Paraguana Refining Center, the world’s second-largest — were operating normally and domestic fuel supplies were guaranteed.

“The call for calm is aimed at clearing the climate of rumors and political destabilization that enemies of the fatherland are trying to sow in the public opinion,” PDVSA said in a statement, echoing government charges that the opposition has been seeking to destabilize the country.

The opposition denies the government’s allegations.

Venezuela is the world’s 11th-largest crude exporter, a top-four supplier to the US and an increasingly important fuel source for China. In 2011, OPEC said the nation had overtaken Saudi Arabia as the country with the world’s biggest crude reserves.

An extension of “Chavismo” under Maduro would keep important existing projects on track in the Orinoco Belt region, while a change in parties could eventually attract more badly needed foreign capital.

Key operations will likely continue much as they have done, with joint ventures with Chevron and Spain’s Repsol in the Orinoco belt adding a small amount to current output of around 3 million barrels per day.

The government has been pushing its partners in the Orinoco and at its older fields elsewhere to come up with more funds to help turnaround stagnant production.

“My expectation is that we will see the ‘status quo,’ with a transition to a similar style of government from Chavez’s successor,” said Katherine Spector, head of commodity strategy at CIBC World Markets in New York.

The Orinoco projects are expected to eventually add 2 million barrels per day of new output via investments of more than US$80 billion.

However, that will take years, with executives at joint ventures in the region saying work has been delayed by lack of infrastructure and delays in payments from PDVSA.

“I don’t expect any change in Venezuelan production in the near term,” said Andrew Lipow, president of Houston-based Lipow Oil Associates.